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Income elasticity of demand is the measure of how responsive consumer demand is to a change in real income. The higher the income elasticity of demand, the higher the sensitivity of demand to a change in income. Different goods have different income elasticity of demand. In general, goods that are considered luxuries have a higher income elasticity of demand than goods that are considered necessities. Here is a look at the types of goods that are likely to have the highest income elasticity of demand.

Luxury Products

Luxury products typically have a high income elasticity of demand. These products are considered non-essentials, and when income increases, people tend to purchase these products more readily. Luxury products can include items such as designer clothes, high-end electronics, expensive cars, and jewelry. As income increases, people have more disposable income, and they are more likely to purchase these luxury items.

Consumer Durables

Consumer durables, which are items that have a longer lifespan, can also have a high income elasticity of demand. These items may be more expensive, and they may last for several years. Examples of consumer durables include refrigerators, washing machines, furniture, and cars. As people’s incomes increase, they may be more willing to purchase these items, which can have a higher income elasticity of demand than nondurable goods.

New and Trendy Products

New and trendy products can also have a high income elasticity of demand. People may be more eager to purchase the latest technology or fashion items when their incomes increase. Products such as smartphones, tablets, smartwatches, and fashionable clothing are examples of new and trendy products that can have a high income elasticity of demand.

Conclusion

In conclusion, goods that are considered luxury items, consumer durables, and new and trendy products are likely to have the highest income elasticity of demand. As people’s incomes increase, they may be more likely to purchase these items, and companies should take this into account when setting prices and marketing their products.